Friday, September 30, 2011

Bernanke can't see the forest through the trees, Europe losing the battle with Greece

Bad News Banks (or is it bears - both in this case):
Banks led the sell off today which was very much fitting do to the unstable scenario they have created. Of course this issue is much deeper thanks to former President Clinton who signed the repeal of the Glass Steagall Act which unregulated banks while in office. The act was founded by the FDIC and the original law was an amendment to the Federal Reserve Act but later was withdrawn.

The Banking Reforms drawn up in Glass Steagall (in short) forced banks to be either an investment bank (ie brokerages & hedgefunds) or commercial banks (ie checking & savings banks). The repeal allowed commercial banks to gamble with customers money and many feel it caused a deeper crisis in 2007 and maybe partially if not directly the cause of it. Don't blame this repeal just on the Democrats (although Obama supports it's repeal too) the Republicans also supported it's repeal on the most part.

Even though I'm a trader I don't support it's repeal because it sets up a dangerous environment where you have banks like Wells Fargo and Bank of America gambling with people's deposits. In my opinion the 2nd part of the GS act was created to prevent a 1929 like depression and by repealing Clinton (with support of Republicans) insured there will be another. Contrary to what some traders think there are many more opportunities to making trading profit in bull markets rather than bears (although a sharp trader can still make a fortune but there's less opportunity when the market shrinks).

Greece in the news:
Over in Europe, Finance Minister Evangelos Venizelos had discussed plans for an orderly Greek default with the IMF last week (although the reports were played down - it is still on the table). The question many are wondering has to do with if Greece will survive it's debt or will Greece survive the Euro? Unfortunately it's a difficult problem because although Greece has created alot of it's on debt through bad business decisions it is also being punished by having to be in the Euro which policies are actually set to benefit the industrial countries (namely France and Germany).

The fear of a member default is the domino effect. In other words if one member defaults it cause other weak members such as Ireland, Portugal, Italy, and Spain to consider following Greece's lead. In such a case, a default could be disastrous for the Euro and it's very survival at stake even those Greece alone would not be a loss to the Euro because it make up only a very small fraction of it and barely 3% in terms of GDP.

So the Euro could survive the loss of Greece but it could cause contagion to spread at a time when a recovery has not taking foot. This fear should not be underestimated. Markets are not just statistics but emotions - that's why the real value is never reflected by the market. The combination of emotion, manipulation, and fundamental worth gives you the financial markets value.

Some economist estimate that the Euro is overvalued by as much as 25%. So just imagine if fear took over the market and there was a 50% change in the other direction if this figure is correct. Or even if it was 10% and it took a 20% swing in the other direction. In my opinion no amount of support from the Euro will be able to save Greece. It only a matter of time before the day of reckoning occurs.

But the question still remains is the US dollar more stable with a man like Bernanke in charge who can't see the forest through the trees and is behind the curve everytime.

Thursday, September 22, 2011

It looks like nothing they can do can stop the financial avalanche, Dow Jones Panic Selling Extended From Global Worries and Gloomy Outlook

Market Update:
Bernanke yesterday stumbled and bumbled new unconventional proposals to stimulate the market but nothing stopped markets from dipping. The Feds Policies underscore "Debt based economy" that is so prominent in the United States. As I type there is a huge sell off in equity futures and it looks like the market will open up as a black Thursday but we'll have to see how it closes and if they can further manipulate the markets back higher but so far gloom is today's picture. Operation Twist they are calling it not QE3 so far is a big flop.

Meanwhile The Aussie dollar has broken through parity and it looks like there is a complete lack of appetite in the markets. Gold, oil, equities all retracing in tandem (to varying degrees).

"Operation Twist" is a 400 billion dollar program that will last through June 2011. The FED also pointed to significant downside risk to the economic outlook. Makes you wonder what good injections will do with "downside risk" - perhaps this is for a "soft landing" but at a cost of compounding debts that the Federal Reserve Bank keeps racking up for the public in an already debt laden economy that currently looks to have no footing for Bernanke & the Fed's big gamble.

In Europe fear spread over continued Greece worries and the possibility that they could still run out of money despite the previous bailouts. There is still a chance Greece could default or leave the Euro all together providing worries that the Euro is not stable. Recessionary worries also shook global markets especially after the US Feds gloomy forecast. Tough times have hit Japan that have been further amplified by a typhoon that struck yesterday won't make Japan money handlers happy. Not long after Japan was then hit by a 5.3 earthquake (as if Fukushima disaster earlier this year wasn't enough to depress Japan). All together the sentiment has been on the gloomy side causing strong selling.

I've dubbed this era of bad fortune "The Era Of The Black Swan" which started with the 911 disaster. I do not know when the Black Swan will stop it's attacks. A Black Swan event is a surprise (to the observer) and has a major impact. After the fact, the event is rationalized by hindsight. 911, Katrina, The War On Terror, Fukishima, the double dip recession, are all Black Swans because they are events that are hard to predict and have great consequences. Also these events seem to last longer than one would think and seem to escalate instead of ending as one would expect. When the Black Swans stop landing there will be a real recovery but until then it will be an era of unpredictability and hardship. I'm hoping the era will end soon but as long as I sense the Black Swan I will be on the defensive.

The AUD/USD (otherwise known as the "Aussie Dollar") has broken through not only parity but the key moving average that the big traders watch "the 200 ema" in the daily timeframe. All risk appetite looks to be sucked out of the market with
"pessimistic outlook" being the dominate force and lack of hope of a realistic global recovery.

This is either the buy of the year or the "risk markets" (equities ect) are clearly in a downtrend or what is said to be the straw that broke the camels back perhaps (an ancient proverb).

Bernanke is supposedly an "expert" (as he so describes himself) in the great depression but if you ask me he has no more expertise than Micky Mouse and is partially to blame for the current ongoing crisis if not a key factor for the housing crash because he was behind the curve with his rate policy and yes his lack of understanding of economic cycles. Oh well you can't complain if your a trader - you just have to go with the flow which in this case and point in time implies a bearish outlook. Take what you can get and stay out of long term trades is what I will be doing. We don't have to believe their lies to profit from them.

---extra---today's market notes

*In economics, things take a lot longer to happen than you think they will, and then they happen faster than you thought they could.
*Stocks sell-off strong - Dow Jones down by over 400 points in heavy panic selling
*US 30yr Bond Yield biggest 2-day drop since 2008
*Ben Bernanke says he will shift the Federal Reserves holdings from short to long term spurring "Operation Twist" which seems to be a positive for the USD and a negative for stocks.
*Earlier this month the ECB's Stark said he will leave the central bank "for personal reasons".
*Tuesdays ZEW report signaled that Germany (Europe's biggest economy) is at risk of contracting.
*The looming threat of default by Greece combined with other factors (slowing economy, inadequate size of the EFSF, Italy's debt situation) has spread fear through Europe underlining the case for a weaker Euro dollar and risk aversion.
*ECB's Stark shakes the markets with commments over "the Euro's existance" as a currency because of out of control spending and excessive debt. His comments combined with Mr. Bernanke's painted a very gloomy picture causing the massive sell off today. Implications are indicating that longer term gloom could be the theme for the rest of the year but I'm just guessing. Unless the markets find support fast it will most likely be the case.